Bloomberg News

Credit Swaps Little Changed With Sentiment at Almost 1-Year High

March 27, 2012

A benchmark index of U.S. company credit risk held near the lowest level in almost a week as a report showed consumer sentiment at about a one-year high.

The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.2 basis point to a mid-price of 89.5 basis points at 4:52 p.m. in New York, according to Markit Group Ltd.

The measure dropped as the Conference Board said that its Consumer Confidence Index (CONCCONF) was 70.2 in March, which was higher than the 70.8 reading initially reported and close to a 12-month high, with the U.S. seeing the best six months of job growth since 2006, and increasing confidence in an economic recovery.

“The consumer confidence print is another data point for investors highlighting a slowly improving economic backdrop, which should be supportive of corporate credit quality,” Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York, wrote in an e-mail.

Home Prices

A separate report today showed home prices in 20 U.S. cities dropped at a slower pace in January, pointing to stabilization in residential real estate. The S&P/Case-Shiller index (SPCS20) of property values fell 3.8 percent from a year earlier.

Markit rolled out a new version of the CDX index, Series 18, last week after Series 17 reached a more than one-year low of 84.7 basis points on March 19. New versions of the index, which banks, hedge funds and other investors use to hedge against losses or to speculate on creditworthiness, are created in September and March.

Credit swaps typically rise as investor confidence deteriorates and fall as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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